Street v. Wal-Mart Stores, Inc.

• Decision Date: 06 July 2015
• Docket Number: No. 14–4764.,14–4764.
• Citation: 792 F.3d 323
• Parties: TRINITY WALL STREET v. WAL–MART STORES, INC., Appellant.
• Court: U.S. Court of Appeals — Third Circuit

792 F.3d 323

TRINITY WALL STREET

v.WAL–MART STORES, INC., Appellant.

No. 14–4764.

United States Court of Appeals, Third Circuit.

Argued April 8, 2015.

Opinion filed: July 6, 2015.

Theodore J. Boutrous, Jr., Esquire, (Argued), Gibson Dunn, Los Angeles, CA, Philip A. Rovern, Esquire, Matthew E. Fisher, Esquire, Angela C. Whitesell, Esquire, Potter, Anderson & Corroon, Wilmington, DE, Adam H. Offenhartz, Esquire, Aric H. Wu, Esquire, Gibson Dunn, New York, N.Y., for Appellant.

Christopher M. Foulds, Esquire, Joel E. Friedlander, Esquire, (Argued), Jeffrey M. Gorris, Esquire, Friedlander & Gorris, Wilmington, DE, for Appellee.

Robert A. Long, Jr., Esquire, Keir D. Gumbs, Esquire, David B.H. Martin, Esquire, Reid Hooper, Esquire, Ali Mojibi, Esquire, Covington & Burling, L.L.P., Stacy Linden, Esquire, Peter Tolsdorf, Esquire, American Petroleum Institute, Washington DC, for Amicus Appellants American Petroleum Institute, Business Roundtable, Chamber of Commerce of the United States of America.

Cory Andrews, Esquire, Richard A. Samp, Esquire, Washington Legal Foundation, Washington, DC, for Amicus Appellant Washington Legal Foundation.

Richard L. Wyatt, Jr., Esquire, Neil K. Gilman, Esquire, Steven M. Haas, Esquire, Scott H. Kimpel, Esquire, J. Steven Patterson, Esquire, Hunton & Williams, LLP, Linda Kelly, Esquire, Patrick Forrest, Esquire, National Association of Manufacturers, Washington, DC, for Amicus

Appellant National Association of Manufacturers.

William B. Chandler, III, Esquire, Bradley D. Sorrels, Esquire, Ian R. Liston, Esquire, Wilson, Sonsini, Goodrich & Rosati, P.C. Wilmington, DE, Gideon A. Schor, Esquire, Wilson, Sonsini, Goodrich & Rosati, P.C., New York, N.Y., Deborah R. White, Retail Litigation Center, Inc., Arlington, VA, Counsel for Amicus Appellant Retail Litigation Center Inc.

Paul J. Lockwood, Esquire, Elisa M.C. Klein, Esquire, Skadden, Arps, Slate, Meagher & Flom, L.L.P., Wilmington, DE, Brian V. Breheny, Esquire, Hagen J. Ganem, Esquire, Skadden, Arps, Slate, Meagher & Flom, L.L.P., Washington, DC, Darla C. Stuckey, Esquire, Society of Corporate Secretaries, and Governance Professionals, Inc., New York, N.Y., for Amicus Appellant Society of Corporate Secretaries and Governance Professionals Inc.

Jeffrey W. Golan, Esquire, Lisa M. Port, Esquire, Barrack, Rodos & Bacine, Philadelphia, PA, for Amicus Appellee Robert F. Kennedy Center for Justice & Human Rights.

Maureen Barden, Esquire, Philadelphia, PA, Richard J. Davis, Esquire New York, N.Y., for Amicus Appellees Mark Barden, Jacqueline Barden, Ian Hockley, Nicole Hockley, Bill Sherlach, Leonard Pozner, Veronique Pozner, Gilles Rousseau, Law Center to Prevent Gun Violence.

Rolin P. Bissell, Esquire, John J. Paschetto, Esquire, Benjamin Potts, Esquire, Young, Conaway, Stargatt & Taylor, Wilmington, DE, for Amicus Appellee (Corporate and Securities Law Professors): Lynn Stout, Jayne Barnard, William A. Birdthistle, Norman D. Bishara, Margaret M. Blair, Douglas M. Branson, James D. Cox, Michael B. Dorff, Lisa M. Fairfax, Tamar Frankel, Brandon L. Garrett, Kent Greenfield, Daniel J.H. Greenwood, Jon Hanson, Thomas Lee Hazen, Robert C. Hockett, Robert J. Jackson, Jr., Lyman Johnson, Renee M. Jones, Thomas W. Joo, Donald C. Langevoort, Patricia A. McCoy, Donna M. Nagy, Lisa H. Nicholson, Charles R.T. O'Kelley, Saule T. Omarova, Stefan J. Padfield, Alan R. Palmiter, Frank Partnoy, Brian J.M. Quinn, Margaret V. Sachs, Cindy A. Schipani, Jennifer Taub, Kelly Y. Testy, Cheryl L. Wade, David H. Webber, Cynthia Williams, Adam Winkler.

Before AMBRO, VANASKIE, and SHWARTZ, Circuit Judges.

OPINION OF THE COURT

AMBRO, Circuit Judge.

Table of Contents

I.	INTRODUCTION	327
II.	FACTS & PROCEDURAL HISTORY	328

A.	Trinity Objects to Wal–Mart's Sale of Assault Rifles	328
B.	Trinity's Shareholder Proposal.	329
C.	Wal–Mart Seeks a No–Action Letter from the SEC.	330
D.	Trinity Takes its Fight to Federal Court: Round One	331
E.	Round Two	332

III. REGULATORY BACKGROUND 334

A.	The Proxy Statement	334
B.	Proxy Solicitation	334
C.	Shareholder Proposals	335
D.	Exclusion of Shareholder Proposals	336
E.	SEC Interpretive Releases on the “Ordinary Business” Exclusion	337

1.	The 1976 Proposing Release	337
2.	The 1976 Adopting Release	338
3.	The 1982 Proposing Release	338
4.	The 1983 Adopting Release	339
5.	The 1997 Proposing Release	339
6.	The 1998 Adopting Release	340

IV. ANALYSIS 340

A. Trinity's Proposal Relates to Wal–Mart's Ordinary Business Operations 341

1.	What is the subject matter of Trinity's proposal?	341
2.	Does Wal–Mart's approach to whether it sells particular products relate to its ordinary business operations?	344

B. Trinity's Proposal Does Not Focus on a Significant Policy Issue that Transcends Wal–Mart's Day–to–Day Business Operations 345

1.	Does Trinity's proposal raise a significant social policy issue?	345
2.	Even if Trinity's proposal raises a significant policy issue, does that issue transcend Wal–Mart's ordinary business operations?	346

V. CONCLUSION 351

I. INTRODUCTION

“[T]he secret of successful retailing is to give your customers what they want.” Sam Walton, Sam Walton: Made In America 173 (1993). This case involves one shareholder's attempt to affect how Wal–Mart goes about doing that.

Appellant Wal–Mart Stores, Inc., the world's largest retailer, and one of its shareholders, Appellee Trinity Wall Street—an Episcopal parish headquartered in New York City that owns Wal–Mart stock—are locked in a heated dispute. It stems from Wal–Mart's rejection of Trinity's request to include its shareholder proposal in Wal–Mart's proxy materials for shareholder consideration.

Trinity's proposal, while linked to Wal–Mart's sale of high-capacity firearms (guns that can accept more than ten rounds of ammunition) at about one-third of its 3,000 stores, is nonetheless broad. It asks Wal–Mart's Board of Directors to develop and implement standards for management to use in deciding whether to sell a product that (1) “especially endangers public safety”; (2) “has the substantial potential to impair the reputation of Wal–Mart”; and/or (3) “would reasonably be considered by many offensive to the family and community values integral to the Company's promotion of its brand.” Standing in Trinity's way, among other things, is a rule of the Securities and Exchange Commission (“SEC” or “Commission”), known as the “ordinary business” exclusion. 17 C.F.R. § 240.14a–8(i)(7) (“Rule 14a–8(i)(7)”). As its name suggests, the rule lets a company omit a shareholder proposal from its proxy materials if the proposal relates to its ordinary business operations.

Wal–Mart obtained what is known as a “no-action letter” from the staff of the SEC's Division of Corporate Finance (the “Corp. Fin. staff” or “staff”), thus signaling that there would be no recommendation of an enforcement action against the company if it omitted the proposal from its proxy materials. See Wal–Mart Stores, Inc., SEC No–Action Letter, 2014 WL 409085, at *1 (Mar. 20, 2014). Trinity thereafter filed suit in federal court, seeking to enjoin Wal–Mart's exclusion of the proposal.See Trinity Wall Street v. Wal–Mart Stores, Inc., 75 F.Supp.3d 617, No. 14–405–LPS, 2014 WL 6790928 (D.Del. Nov. 26, 2014). The core of the dispute is whether the proposal was excludable under the ordinary business exclusion. Although the District Court initially denied Trinity's request, it handed the church a victory on the merits some seven months later by holding that, because the proposal concerned the company's Board (rather than its management) and focused principally on governance (rather than how Wal–Mart decides what to sell), it was outside Wal–Mart's ordinary business operations. Wal–Mart appeals, seeking a ruling that it could exclude Trinity's proposal from its 2015 proxy materials and did not err in excluding the proposal from its 2014 proxy materials.

Stripped to its essence, Trinity's proposal—although styled as promoting improved governance—goes to the heart of Wal–Mart's business: what it sells on its shelves. For the reasons that follow, we hold that it is excludable under Rule 14a–8(i)(7) and reverse the ruling of the District Court.¹

II. FACTS & PROCEDURAL HISTORY

Public companies publish and circulate a proxy statement in advance of their annual shareholders' meeting. The statement “includes information about items or initiatives on which the shareholders are asked to vote[.]” Apache Corp. v. Chevedden, 696 F.Supp.2d 723, 727 (S.D.Tex.2010) (citation omitted). It can also include shareholder proposals—a device that allows shareholders to ask for a vote on company matters. Predictably, companies don't easily surrender control of their proxy statement and often lean on an SEC rule to justify excluding a given shareholder proposal. But doing so can trigger a protracted legal battle that escalates from an exchange of views before the SEC to a federal lawsuit. This is one such case.

A. Trinity Objects to Wal–Mart's Sale of Assault Rifles.

Trinity's roots extend back centuries. Its St. Paul's Chapel is the oldest public building in continuous use in New York City and is where George Washington worshipped after his first inauguration. In 1705, the church was the beneficiary of the lower Manhattan farm of Queen Anne of England, instantly making it very wealthy.

The story isn't much different today. Trinity continues to be one of the wealthiest religious institutions in the United States, with a balance sheet of over $800 million in assets and real estate valued at approximately $3 billion. See Letter from Trinity Wall Street CFO Accompanying Trinity's 2013 Financial Statements (undated), available at https://www.trinitywallstreet.org/sites/default/files/miscellaneous/LetterfromtheCFOaccompanyingthe2013FinancialStatements.pdf. Its strong financial footing, according to Trinity, empowers it to “pursue a mission of good works beyond the reach of other religious institutions.” Trinity Br. 16. Part of that mission is to reduce violence in society.

Alarmed by the spate of mass murders in...